2 min read.Updated: 17 Oct 2021, 10:22 PM ISTLivemint
The silver lining for the World Bank and IMF is that they have a rare chance now to weaken the sway of US politics, jettison past ideological moorings and practice true multilateralism
Listen to this article
Three dark clouds hung over Washington as the Boards of Governors of the World Bank Group and the International Monetary Fund (IMF) gathered for an annual stock-taking of these multilateral institutions. The Fund-Bank annual meetings usually find central bankers, academics, finance ministers, private-sector executives and civil-society mavens converging on the city to discuss such issues as poverty eradication, the promise of decentralized finance or other matters of global economic importance. It was under the shadow of three ominous clouds: the controversy over the Bank’s Doing Business report that almost cost IMF managing director Kristalina Georgieva her job, the pandemic’s long-term contribution to uncertainty over a global economic recovery and the threat of climate change. All three concerns come laced with contested political philosophies, are global in nature, as they affect rich and poor countries alike (though the degree of impact may differ), and, importantly, they represent a rare chance to correct the foundational flaws of these Bretton Woods institutions.
The shadow of the Doing Business scandal was palpable. The ranking of countries on the basis of a “synthetic" methodology, according to economic historian Adam Tooze, is “Washington Consensus orthodoxy, recast in statistical form". That fact alone invested the rankings with politically-fraught agency, given the ideological agenda apparent in the Fund-Bank risk- rewards matrix. It left no room for an alternative development strategy, but held weight with global investors; it was, in short, coercion by ranking. While the current controversy springs from Washington’s conservative-versus-liberal politics, it will hopefully hasten the burial of one more outdated Fund-Bank instrument. But much more needs to be done.
The two institutions’ future responsibilities and tasks will be shaped by pandemic-affected global economic instability and the likelihood of prolonged disequilibrium on account of climate change. The latest edition of the IMF’s World Economic Outlook states, depressingly, that the pandemic has widened the existing economic gap between rich and poor nations. Its Fiscal Monitor says that while advanced economies used supportive fiscal policy to kickstart growth and employment, the pandemic’s impact has squeezed the fiscal space for poor nations, thereby imperilling their growth prospects for some time to come. The uneven pace of vaccination across economies worsens the malady. Add to this volatile mix the visible effects of climate change and the US Federal Reserve’s proposed monetary-policy normalization, and risks to the global economy magnify. It has now become clear that the Bretton Woods institutions need to shed their orthodoxy and provide higher volumes of concessional funding at an accelerated rate, either directly or by precipitating financial flows from other agencies, before an economic slowdown becomes endemic. They need to look beyond the conventional, anticipate nascent risks and act authoritatively. The $64-billion-question here is whether the duo can make meaningful contributions by minimizing the influence of America’s domestic politics or by jettisoning their past ideological moorings. The three dark clouds, unlike the three witches in Shakespeare’s play Macbeth, actually come with a silver lining, but the institutions must be willing to grab this rare opportunity with both hands.